The paper also assesses the risk of a wage-price spiral
for the inflation trajectory.
Many Fed officials believed that required raising rates to slow the economy and prevent a "wage-price spiral
" from sending inflation higher.
This decision puts greater pressure on other measures to arrest the momentum, to prevent a wage-price spiral
, and bring inflation back to low-4 percent zone,"Salceda said.
He added that 'there is little time for debate' as 'this decision puts greater pressure on other measures to arrest the momentum, to prevent a wage-price spiral
, and bring inflation back to low-4% zone.'
But there is not a lot of evidence of a looming wage-price spiral
and unless one starts to develop, the annual inflation rate should start coming down over the next few months as last year's drop in the value of the pound ceases to have an impact on import prices.
The reason is clear: By taking time to set the stage for liberalisation, governments hoped to limit the initial spike in price inflation, thereby avoiding a wage-price spiral
and curbing capital flight.
The MPC remains concerned about the risks of a wage-price spiral
, should settlements well in excess of inflation and productivity growth become the economy-wide norm.
We could be closer to an inflationary wage-price spiral
than the relatively high unemployment rate (6.7 percent in March) suggests.
"Moreover, with wage growth being so low at just 0.4% and inflation expectations remaining contained, there appears to be very little threat of a wage-price spiral
in the UK."
A wage-price spiral
could turn cost-push inflation into sustained inflation.
In some cases, reforms to wage-setting mechanisms broke a wage-price spiral
. And exchange rate depreciation supported external demand and growth.
Their main focus appears to have been on property prices, yet they have also been keen not to see a wage-price spiral